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The Interpretations Committee tentatively decided not to add this issue to its agenda

 07 September 2016


The Interpretations Committee received a submission questioning how, in its consolidated financial statements, an entity accounts for a transaction in which it acquires all of the shares of another entity that has an investment property as its only asset. In the fact pattern submitted, the acquiree had recognised in its statement of financial position a deferred tax liability arising from measuring the investment property at fair value. The amount paid for the shares is less than the fair value of the investment property because of the associated deferred tax liability. The transaction described in the submission does not meet the definition of a business combination in IFRS 3 Business Combinationsbecause the acquired entity is not a business. The acquiring entity applies the fair value model in IAS 40 Investment Property. The submitter asked the Interpretations Committee to consider whether the requirements in paragraph 15(b) of IAS 12 should be amended in this respect.

The Interpretations Committee noted that:

  1. because the transaction is not a business combination, paragraph 2(b) of IFRS 3 requires the acquiring entity, in its consolidated financial statements, to allocate the purchase price to the assets acquired and liabilities assumed; and
  2. paragraph 15(b) of IAS 12 states that an entity does not recognise a deferred tax liability for taxable temporary differences that arise from the initial recognition of an asset or a liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither accounting profit or loss nor taxable profit (tax loss).

Accordingly, on acquisition, the acquiring entity recognises only the investment property and not a deferred tax liability in its consolidated financial statements. The acquiring entity therefore allocates the entire purchase price to the investment property.

The Interpretations Committee concluded that the requirements in IFRS Standards provide an adequate basis to enable an entity to determine how to account for the transaction. The Interpretations Committee also concluded that any reconsideration of the initial recognition exception in paragraph 15(b) of IAS 12 is something that would require a Board-level project. Consequently, the Interpretations Committee [decided] not to add this issue to its agenda.

The Interpretations Committee noted that the Board had recently considered whether to add a project on IAS 12 to the Board’s agenda, but had decided not to do so. Consequently, the Interpretations Committee did not recommend that the Board consider adding a project to its agenda on this topic.